The Grain Report - Plan ahead!

The first three days of this week gave us a little bit of everything to trade. Last Friday, we said get ready to start the week with lower prices as funds continue to reduce their long-held positions. We got the break with corn off $.30 from Friday's high to Monday's low, beans down $.68 and wheat $.26 lower to start the week. And, we also said use an early-week break to buy, as short-held positions will cover (or buy them back) fearing what the September 30 crop report will say.

Those who bought the break were quickly rewarded, as by Tuesday's close, corn rallied $.36, beans $.40 and wheat $.50 from the level of Monday's low. This was all short covering, as we suggested.

Few new longs came into the picture, leading me to suggest in my Tuesday report after the close that if you bought the break, the time was right to consider taking profits or put profit stops in. Pre-report estimates released Tuesday for today's crop report suggested traders were anticipating bearish quarterly stocks numbers.

Those who had acted on my suggestions were again rewarded as Wednesday saw a second weekly sharp decline in reaction to the report estimates. And the drop was accelerated by sharply lower outside markets before rebounding slightly on Thursday.

Thursday's mild strength came on two fronts. One, short covering again from Wednesday's break and two, the weekly export sales report gave a few bullish surprises. Soybean exports were 1.033 million metric tons - high for the marketing year to date. China is in for 845 thousand metric tons of the total. [We mentioned in last Friday's report that daily disclosures of Chinese buying would show up on the next report, and said to expect a good number; while the daily USDA disclosures showed only 430 thousand metric tons, this report showed 845 thousand metric tons. That reminds market participants that not all sales are reported until the weekly report.]

We expect sales to China continuing strong during the U.S. harvest, a seasonal trend. La Niña looks to bring warmer- and drier-than-normal weather to Brazil and Argentina, the world's number two and three producer exporters, now planting.

Corn sales were 787 thousand metric tons vs 598, with China in for 182 of the total and in for the second consecutive week. These are not monster buys to push prices wildly - more like nibbling by China. The trade expects record Chinese corn purchases for the new marketing year.

Each week we try to give a schematic for the next week as to what may or may not happen. Keep in mind large trading funds dictate the trend and its extremes, so market correction can change daily.

When we return on Monday, it will be a new month - October. Historically, for the past four years since these billion dollar trading funds entered the scene, we have seen them buying at the start of the new month. Funds buy long at the beginning, prior the release. They can shift on uncertainty of each USDA monthly crop report that comes out the 9th to 12th of each month.

In 8 of 12 months during 2009, the futures prices rallied with the high occurring before the second week of the month and a low reached second half of the month. 2010 saw 10 of 12 months with the same pattern and 2011 as of this writing has seen 7 of nine months with the pre-report rally from the first day of the month to report release. Some rallies are as small as $.15 but some go out to $.70 or more.

Logic suggests another pre-report rally prior the October 12 USDA crop report. Here's the wildcard. This month sees the first 10 days October with warmer and drier than-normal weather. With crop harvest occurring late, due to late planting, growers will hit the fields big-time next week and this could have us start off lower unless something occurs over the weekend.

If prices start the week lower, I'd anticipate the weekly lows to occur before Wednesday's close. A weekly early low should hold, I think, as technical signals will indicate a sufficient correction, and then look for the usual short covering and buying ahead of the October 12 crop report.

Any early-week harvest correction is dependent on the reaction to today's Friday quarterly stocks and wheat report. Corn stocks came in at 1.128 billion bushels on hand as of September 1. This was well over the average pre-report trade guess of 942 billion.

This was the second consecutive quarterly stocks report where the government found corn they didn't know they had. This will take out a lot of the bullish sentiment prior the monthly October 12 grain report as the additional corn found on this report will be added to ending stocks on the October report.

Bean stocks were put at 215 million bushels vs estimates of 224. A 9-million-bushel cut is friendly, but too small a change to reflect the big picture.

Wheat stocks were put at 2.150 billion bushels versus estimates of 2.071. Trade talk will be that we must have fed less feed quality wheat to animals. But stocks have been ample, so a small blip is meaningless.

Traders then refocus on planting and production of winter wheat crops here and abroad. The insiders I've heard are saying the low is near as bearish news and its impact on the October 12 crop report is priced in. Well, maybe. Corn support basis December corn is $6.76. A close under would set a target down to $6.44. Resistance is $6.30. November beans support lies at $11.20 then $10.97 worst case scenario with overhead resistance at $12.34. December wheat support is $6.00 then $5.50, with upside resistance at $6.45 and again at $6.90.

There is a substantial risk of loss in trading futures and options. Past performance is not indicative of future results. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities. PFGBEST, its officers and directors may in the normal course of business have positions, which may or may not agree with the opinions expressed in this report.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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